What should you know about FHA home loans for houses, condos, and townhouses? There are plenty of issues to keep in mind including down payment requirements, appraisal rules, and special options.
FHA Loan Rules For Houses
The FHA loan handbook, HUD 4000.1, addresses home loans for new houses depending on their classification as existing construction, new construction, or proposed/under construction.
Borrowers who want to buy an existing construction home will be looking at property that has had at least one owner. Existing construction FHA loans require an appraisal and the borrower is required to make a minimum down payment of 3.5% of the adjusted value of the property unless the transaction requires more due to credit issues, identity-of-interest problems, etc.
New construction loans (such as the FHA One Time Close construction loans) are possible with an FHA mortgage.
We have done extensive research on FHA One-Time Close mortgages and spoke directly to the licensed lenders for most states. These are qualified mortgage loan officers who work for lenders that know the product well. Each company has supplied us the guidelines for their product. If you are interested in being contacted by one licensed lender in your area, please respond to the below questions to save time. All information is treated confidentially.
Your response to firstname.lastname@example.org authorizes FHANewsblog.com to share your personal information with a licensed mortgage lender in your area to contact you.
Please note that the FHA One-Time Close Construction Program only allows for single family dwellings (1 unit) – and NOT for multifamily units (no duplexes, triplexes or fourplexes).
1. Send your first and last name, e-mail address, and contact telephone number.
2. Tell us the city and state of the proposed property.
3. Tell us your credit score and/or the Co-borrower’s credit score, if known. 620 is the minimum qualifying credit score for this product.
4. Are you or your spouse (Co-borrower) eligible veterans? If either of you are eligible veteran’s, the down payment is $0 up to the maximum VA lending limit for your county. If not, the FHA down payment is 3.5% up to the maximum FHA lending limit for your county.
These loans require higher FICO scores than mortgage loans for existing construction, but the results can be worth any extra time it takes to budget, save, and prepare for the loan application. An FHA construction home loan is technically available to either build a home from the ground up (“stick-built”) or for the assembly on-site of a manufactured or modular home.
However, you may find that FHA construction loans for non stick-built properties harder to find. Consider that in your search for a participating lender.
Buying a home with an FHA mortgage always means a new credit check, appraisal, and any required follow-up inspections as a result of that appraisal. Expect to put down a minimum of 3.5% of the adjusted value of the home unless you are applying specifically for an FHA 203(h) rehab loan in a federally declared disaster area; that is the only new purchase FHA mortgage that does not have a down payment requirement of 3.5%.
FHA Loan Rules For Townhouses and Condos
FHA loan rules for condo units (and yes, properties that appear to be townhouses but are organized under a condo project-style set of agreements and covenants) differ from new purchase loans for a few important reasons. One of those reasons involves the group ownership nature of condo projects.
Borrowers aren’t buying the entire building when applying for an FHA condo loan, they are buying a unit within the project. FHA loan rules for condo loans are designed to protect the borrower in several ways including a prohibition of restrictive bylaws in the homeowner/condoowners agreements the buyer must sign.
If the buyer cannot freely sell her property at any time under the condo owner’s association agreements, the property cannot be approved for an FHA mortgage loan. Do condo projects actually feature such requirements? Some still do. We’ll review that aspect of the home buying issue in part two.